Leavell v. Comm'r of Internal Revenue
| Decision Date | 30 January 1995 |
| Docket Number | No. 29996–91.,29996–91. |
| Citation | 104 T.C. 140,104 T.C. No. 6 |
| Parties | Allen LEAVELL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Bennett G. Fisher and Ian Cain, Houston, TX, for petitioner.
Victoria Sherlock and Susan Sample, Houston, TX, for respondent.
P, a professional basketball player, formed a personal service corporation. P agreed to furnish his services to his personal service corporation; the personal service corporation, in turn, executed an NBA Uniform Player Contract with the Rockets to furnish P's services. As a condition to executing the player contract, the Rockets required P to execute a written agreement with the Rockets wherein P personally agreed to perform the individual services called for by the terms and conditions of the player contract.
Held: The Rockets had the right to control the manner and means by which P's personal services were performed; accordingly, with respect to P's services as a player for the Rockets, P was an employee of the Rockets. It follows that the $204,333.35 paid by the Rockets to P's personal service corporation constitutes income allocable to P. Sargent v. Commissioner, 93 T.C. 572 (1989), revd. 929 F.2d 1252 (8th Cir.1991), followed.
*
This case is before the Court pursuant to a petition filed by Allen Leavell (petitioner) for redetermination of respondent's determination of a deficiency of $66,897 in petitioner's 1985 Federal income tax. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for 1985, the taxable year in issue. Rule references are to the Tax Court Rules of Practice and Procedure.
After concessions by the parties, the sole issue for decision is whether $204,333.35 paid to petitioner's wholly owned personal service corporation, Allen Leavell, Inc. (Corporation), is includable in his gross income. The Houston Rockets (Rockets), a basketball team in the National Basketball Association (NBA or Association), paid this amount to Corporation in exchange for petitioner's services as a professional basketball player.
Many of the facts have been stipulated and are so found. The stipulation of facts, first supplemental stipulation of facts, and attached exhibits are incorporated herein by this reference. For the taxable year in issue, petitioner filed a 1985 Form 1040, U.S. Individual Income Tax Return, with the Austin Service Center of the Internal Revenue Service. When he filed his petition in this Court, petitioner resided in Houston, Texas.
Petitioner began playing professional basketball for the Rockets in 1979. On July 1, 1980, upon advice of counsel, petitioner formed Corporation to serve as his representative/employer for his services as a professional basketball player and to market his personal appearances and endorsement opportunities. 1 Corporation observed all corporate formalities as required by the laws of Texas, its State of incorporation, and was in good standing throughout the taxable year in issue. Corporation had a fiscal year that ended on June 30.
Petitioner was the sole shareholder of Corporation during its existence and served as Corporation's president and treasurer; petitioner also served as one of Corporation's two directors. Petitioner's attorney and agent, Lance Luchnick, served as Corporation's vice president and secretary; Mr. Luchnick also served as Corporation's other director. Mr. Luchnick was actively involved in the day-to-day operation of Corporation; his duties and responsibilities included opening Corporation's mail and paying its bills, maintaining and controlling its checking account, depositing and writing its checks, paying its payroll, preparing (or causing to be prepared) its tax returns, and negotiating all contracts on its behalf. Petitioner met routinely with Mr. Luchnick to review the business of Corporation.
In his individual capacity, petitioner entered into an employment agreement with Corporation under which petitioner agreed to provide his basketball and promotional services exclusively for Corporation. This agreement gave Corporation the right to determine the professional basketball team for which petitioner would perform and also the right and authority to contract with any professional basketball team.2 With respect to his promotional services, Corporation generated income opportunities for petitioner based on his endorsements of consumer products (e.g., Nike shoes, athletic equipment, and clothing) and by promoting petitioner's appearances at selected events. For each of these income opportunities, Corporation had the right to dictate to petitioner the time and place of the endorsement or the event.
On December 11, 1984, the Rockets and Corporation executed a contract entitled “Uniform Player Contract”. The Uniform Player Contract was a form contract drafted by the NBA; the individual teams in the NBA were required to use the Uniform Player Contract to bind a player to their team, and could not omit or reject any of the provisions therein. The 1984 Uniform Player Contract executed by Corporation and the Rockets was for a term of 2 years starting on September 1, 1984, and covered the Rockets' 1984–1985 and 1985–1986 basketball seasons.3
The 1984 Uniform Player Contract designated Allen Frazier Leavell, Inc., as the “player”. There is nothing in the written terms of the 1984 Uniform Player Contract that specifically calls for petitioner to personally perform the services required to be provided by the “player”.4 The contract required that the “player”: Attend each training camp; play the scheduled games during each season; play all scheduled exhibition games during and prior to the season; when invited, play in the All–Star Games and attend every event associated with the All–Star Games; play in the playoff games subsequent to each regular season; report at the time and place fixed by the Rockets in good physical condition; keep in good physical condition throughout each season; give his best services and loyalty to the Rockets; agree to give immediate notice of any injury suffered by him, including the time, place, cause and nature of such injury, and submit himself to a medical examination and treatment by a physician designated by the Rockets; play only for the Rockets or its assignees; report to the club to whom his contract has been assigned within 48 hours after receiving notice of the assignment or within such longer time for reporting as may be specified in the notice; and refrain from, directly or indirectly, enticing any player or coach to enter into negotiations for or relating to his services as a basketball player.
The contract also required that the “player”: Observe and comply, at all times whether on or off the playing floor, with all requirements of the Rockets respecting conduct of its team and its players; be neatly and fully attired in public and always conduct himself according to the highest standards of honesty, morality, fair play, and sportsmanship, on and off the court; not do anything which is detrimental to the best interests of the Rockets or the Association; not engage in sports endangering his health or safety (including, but not limited to, professional boxing or wrestling, motorcycling, moped riding, auto racing, sky diving, and hang gliding); except with written consent of the Rockets, not engage in any game or exhibition of basketball, football, baseball, hockey, lacrosse, or other athletic sport; allow the Rockets or the Association to take pictures of the “player”, alone or together with others, at such times as the Rockets or Association may designate; refrain from public appearances, participating in radio or television programs, permitting his picture to be taken or writing or sponsoring newspaper or magazine articles or commercial products without the written consent of the Rockets, which shall not be withheld except in the reasonable interests of the Rockets or professional basketball; make himself available for interviews by representatives of the media conducted at reasonable times; agree to participate in all other reasonable promotional activities of the Rockets and the Association; and conform his personal conduct to standards of good citizenship, good moral character and good sportsmanship.
Under the contract, the Rockets could impose fines, sanctions, and other disciplinary measures for “player” violations. For example, the “player” could be: Fined, suspended, and have his compensation reduced for violating the requirements of the Rockets respecting conduct of its team and players; suspended and have his compensation reduced for not arriving in good physical condition for the first game of the season, or if he fails to remain in good physical condition throughout the season (unless the condition results from any injury sustained as a direct result of participating in any practice or game played for the Rockets); suspended and have his compensation reduced for failing to report to a club to whom his contract has been assigned; and fined and suspended for engaging in sports that may endanger his health or safety.
The contract also provides that the Association could impose fines, sanctions, and other disciplinary measures. For example, the “player” could be: Suspended or indefinitely expelled by the Commissioner if he bet, or offered or attempted to bet, money on the outcome of any game participated in by any club which is a member of the Association; subject to a fine not exceeding $1,000 by the Association for giving, authorizing, or endorsing any statement having or designed to have, an effect that is prejudicial or detrimental to the best interests of basketball or of the Association; subject to a fine not exceeding $10,000 and suspended by the Association for engaging in an act or conduct during a preseason, championship, playoff or exhibition game that is prejudicial to or against the best interests of the Association or the game...
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